Giving to Charity: Understanding the Tax Benefits

Accountants will tell you that one of the quickest and easiest ways to reduce your tax bill is to make a charitable donation. This is a great way to help your favourite cause and lower your tax bill at the same time. In fact, every gift of more than $2 to an approved charity is tax deductible, and there is no upper limit on the amount you can claim. The only thing you can’t do is use a large donation to create a tax loss.

Many businesses choose charitable donations as a better method of disposing of excess earnings near the end of the financial year to generate goodwill as well as reducing their tax liability.

While this might sound a good idea, you should always ensure that you understand the Australian Taxation Office rules for charitable giving. Making a charitable donation can make you feel good but you might end up with a sour taste in your mouth if you find your claim denied by the Tax Office.

Let’s take a look at some of the benefits and rules that apply.

  • As stated above, all deductions of $2 and over to an approved organisation will be tax-deductible. But if you donate this money and receive something in return, you cannot claim it as a tax deduction. For instance if you buy a ticket to a charity dinner or receive a pen or a chocolate bar in return for a donation, it will be denied as a deduction. In a similar vein the purchase of raffle or art union tickets, or contributions to a school building fund, are not deemed as deductible gifts by the ATO.
  • Keep all official receipts for every donation you make, no matter how small the amount of money involved. You will be surprised how quickly small but frequent donations can add up over a financial year.
  • If you want to give shares to a charity, they must be valued at $5000 or less and purchased at least 12 months before the gift is made. Similarly a gift of property must have been purchased in the 12 months before the donation for it to be treated as a deductible item.
  • Before you make a donation to charity make sure it is registered with the Taxation Office as an Australian charity. This is the only way you can ensure that your donation will be tax-deductible.

As a side note, remember that when you make a donation to charity via a middle man, for instance a door-to-door collector or via an advertisement on the Internet, you could have some of your money paid into an advertising agency or other company as a commission. This means that the charity does not receive the total amount you donated. A better way is to make a contribution directly into your chosen charity by direct bank deposit or payment by credit card.

If you are in any doubt, check with your accountants or tax agent to make sure your claim for a charitable donation will be allowed.